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Interest rates stay at record level

Interest rates stay at record level

5 min read

April 11, 2011

Interest rates have stayed at a record low as policymakers in the UK and Europe gave different responses to rising prices.

Although pressure for a base rate rise has increased, the Bank of England's Monetary Policy Committee kept its base rate at 0.5% for the 25th month, deciding that the UK economy was still too weak to withstand the shock of higher borrowing costs.

Pressure to raise it grew after the CPI measure of inflation rose to 4.4% in February - twice the Bank's 2% target - and as fuel, food and commodity prices rose for consumers.

While the MPC left its emergency support package for the UK economy in place, the European Central Bank hiked rates for the first time since July 2008. The ECB's base rate rose to 1.25% from its record low of 1% as it took a hard line against inflation which hit 2.6% in March.

Inflation in the eurozone is much lower than the UK's and only marginally above the 2% target but the ECB acted over fears that the rising cost of oil and commodity prices could see higher wage demands, forcing the bloc into a vicious circle.

The MPC's inaction left it open to criticism that savings are being eroded by inflation and families are struggling to pay bills, but home-owners with tracker mortgages will continue to see record low rates.